The Reserve Bank of India on Monday said the medium-term outlook remains favourable with economy in 2004-05 set to build upon the robust performance recorded in the previous fiscal though a fuller assessment of the impact of monsoon on growth is difficult at this juncture.

Uncertainties surrounding the progress of monsoon, impact of higher international crude price on domestic real activity and breadth of global recovery contain some risk for the macroeconomic outlook for India, the RBI said in its annual report for 2003-04 released in Mumbai.

These risks impart an element of downward bias to the estimates of GDP growth made at the beginning of the year but evolving strengths may restore the position, and in any case India would continue to be among the top performers globally.

With the deepening of industrial recovery and sustained growth of the services sector, the economy is set to build upon the robust performance recorded in 2003-04, it said.

Adequate stocks of foodgrains and foreign exchange reserves would provide a sufficient cushion to the economy against possible adverse developments, it said, adding, foodgrain stocks at 30.6 million tonnes on July 1, 2004, were still above the stipulated quarterly norm of 24.3 million tonnes as on July one last year.

The RBI said the cumulative rainfall during June 1 to August 11 was, however, seven per cent below normal (long period average) as compared with three per cent above LPA during the comparable period of 2003.

The apex bank said the areas sown as on July 30, indicate that production of major crops such as rice, coarse cereals, jute, cotton and mesta may be adversely affected, although a clear assessment would depend on the progress of South-West monsoon.

Industrial recovery currently underway has been broad-based and qualitatively robust. Strong growth in key industries, especially transport equipment and parts, paper and paper products, machinery and equipment and basic chemicals and chemical products has helped industrial growth in 2004-05.

An encouraging feature of infrastructure performance has been the revival of the electricity sector. Various indicators suggest an improved investment climate.

In particular, sustained expansion of capital goods sector combined with increased capital goods imports augurs well for investment climate.

The services sector is also expected to gain further momentum from the commodity producing sectors, particularly in the trade, transport and communication segments and in "new economy" activities.